Elon Musk is one of the greatest entrepreneurs of our time, having built Tesla Inc.. (TSLA, Financial) into the world's largest electric vehicle company.
In addition, he runs or has a substantial stake in SpaceX, the Boring Co. and Neurlink. Despite these many business interests, Musk has also found time to be actively involved in cryptocurrency, from bitcoin to Dogecoin, and even tweet about his activities. More recently, he tried to take over Twitter Inc. (TWTR, Financial) before changing his mind. After several months of back-and-forth between Musk and the social media company, the deal appears to be back on.
Timeline of events
In April, a Securities and Exchange Commision filing revealed Musk had snapped up a 9.2% stake in Twitter, which equated to an investment of $2.9 billion. This caused the stock to pop by over 20% on the news.
This transaction followed a March poll in which Musk asked if Twitter adheres to free speech. More than 2 million of Musk’s followers voted, with over 70% selecting “No."
"Free speech is essential to a functioning democracy.
— Elon Musk (@elonmusk) March 25, 2022
Do you believe Twitter rigorously adheres to this principle?"
With the consensus opinion of voters saying Twitter does not adhere to free speech, Musk felt that needed to change.
On April 14, Musk offered $43 billion, or $54.20 per share, to buy Twitter with plans to take the company private. Twitter's management viewed this as a hostile takeover attempt and executed a “poison pill” strategy, which would dilute Musk if he attempted to purchase more shares.
By April 20, Musk had secured funding from banks such as Morgan Stanley (MS, Financial) and Bank of America (BAC, Financial), including $6.25 billion in bank loans, which were secured to over $62 billion worth of Tesla stock. In addition, he included $20 billion in cash he had from the sale of some Tesla stock, which caused a lot of controversy among the company's investors.
Musk then registered three new holding companies with the name “X Holdings” in preparation for the deal.
On April 25, Twitter's board accepted the deal for $44 billion and Musk would be required to pay a $1 billion breakup fee if he backed out.
By May 13, Musk had put the deal on hold due to report that over 5% of Twitter's daily active users were spam accounts. Twitter CEO Parag Agrawal responded by saying an external review of Twitter’s users was impractical. Musk disagreed. To compromise, Twitter then offered a “fire hose” of live user data.
On July 8, Musk said he planned to terminate the deal as he believed Twitter’s management did not uphold with their side of the agreement. In response, the company sued him on July 12 and a courtroom showdown was pending.
The deal is back on
Musk has now done a U-turn, agreeing on Oct. 3 to acquire Twitter at his original price of $54.20 per share if the company drops its lawsuit. Twitter’s stock price popped by more than 20% on the news and has been a rollercoaster for investors.
It was suggested by law experts that Musk has realized he would have a weak defense if he went to trial. One expert, Anat Alon-Beck, a business low professor at Case Western Reserve University in Ohio, said in an email to The Washington Post, “Musk is finally listening to his lawyers. He would be a fool to not at least try to buy the company now and avoid being deposed."
Thus, it makes sense for him to continue with the deal. Both parties will still need to sign the documentation and Musk still has to come up with the $42 billion. It is difficult to know if his previous funding is still secure as his unpredictability may have spooked some banks. This could lead to more Tesla stock needing to be sold, which would impact investors.
Twitter issued this statement about today's news: We received the letter from the Musk parties which they have filed with the SEC. The intention of the Company is to close the transaction at $54.20 per share.
— Twitter Investor Relations (@TwitterIR) October 4, 2022
What this means for investors
There is no doubt Musk moves markets. His actions caused an over 20% increase in Tesla stock within a single day. However, Tesla investors may be cautious as he may be more distracted running a social media company as well as the world's largest electric vehicle maker. Individual retail investors may not be as concerned by large institutional investors having to think about governance. Thus, I imagine this will be factored into the valuation of Tesla in a negative manner.
Musk is arguably a truly great entrepreneur, but is he diluting his genius with unnecessary battles or will he change the world of social media and energy?
